Saturday, Senator Reid released his Manager’s amendment to the health care reform legislation currently being discussed in the U.S. Senate. One provision in the amendment involved the $6.7 billion annual tax that will be levied on the health insurance industry. As the Congressional Budget Office has stated, this tax will get passed on to consumers through higher premiums. In his amendment, Senator Reid put forth that non-profit health insurance companies will be exempt from this tax — in essence leaving for-profit plans, and their members, to shoulder the entire tax burden.

What does this mean to the 2 million Kentucky residents who have health insurance provided by for-profit companies?

It means Kentucky’s share of the $6.7 billion tax will increase significantly, which will directly impact the state’s insured population, causing their premiums to increase even more. Because a greater percentage of Kentuckians are insured by for-profit companies (76 percent) than the national average (55 percent), Kentucky taxpayers will subsidize states like Michigan, which has a very low enrollment in for-profit health insurers (23 percent).

Any proposal to tax only for-profit health plans will further exacerbate the unlevel playing field for not-for-profit plans, without improving access to health benefits coverage or enhanced health services. While some plans are not-for-profit, that does not mean they are not “profitable.” Insurers are required to generate a “net income” in order to help ensure they can pay future claims by members. Not-for-profit simply reflects a tax status under the Internal Revenue Service Code. In many states, the net income on a per-member, per-month (PMPM) basis for not-for-profit health plans is actually higher than that of the for-profit health plans.

Over time, unequal taxation will lead to the erosion and potential insolvency of for-profit plans, as a progressively smaller share of the overall market would bear the burden of sustaining the entire amount of the tax. Ultimately the government would receive no revenue from the tax when there are no for-profit entities remaining subject to the tax.

We are opposed to this provision which would unfairly force Kentucky’s health care consumers to subsidize health care consumers from other states.

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